1. Assume that the risk-free rate is 5% and the required return on the market is 8%. What is the required rate of return on a stock with a beta of 1.3? Round your answer to two decimal places.
2. A new piece of specialty equipment costs $2,500,000 and will be depreciated to an expected salvage value of $400,000 on a straight-line basis over its 3-year life. Assuming a tax rate of 35%, what is its after-tax salvage value if the equipment is actually sold after 2 years for $1,250,000?
$97,500
$437,500
$812,500
$1,197,500
$1,250,000